What happens to the director of a dissolved company?

What’s next for a director after company strike off?

When a company director dissolves a company, they are free to operate as usual, providing that they act properly and fulfil their directorial duties. If a company director fails to act responsibly and dissolves a company wrongfully, the consequences can be detrimental and impact their ability to operate as a director.

To successfully dissolve (strike off) a limited company, the company must be debt-free and have no outstanding creditors. If a company director acts dishonestly or dissolves a limited company with debts, the risk does not end here, as the company director can be reprimanded, even after the company is struck off.

We look at what happens to the director of a dissolved company if they fall foul of their directorial duties.

Rights of a company director after dissolving a company

If a company director dissolves a limited company correctly, they are free to operate with no restrictions.

The main ground rules for dissolving a company include:

-         The company must be free from the threat of liquidation

-         The company must not be engaged in any formal agreements with creditors, such as a Company Voluntary Arrangement (CVA)

-         Any outstanding affairs with creditors must be settled

-         Relevant parties, such as shareholders, creditors, and employees, must be informed

If the company fails to meet these conditions, consider a voluntary liquidation procedure, such as a Creditors’ Voluntary Liquidation (CVL).

What happens if a director wrongfully dissolves a company?

Company directors must act responsibly, comply with regulations and use reasonable care when dissolving a company. If you fail to protect the best interests of creditors, the consequences can be severe, such as:

Strike off suspended - The company strike off route is for businesses with no debts or creditors. If a company director dissolves a company with debts, rather than formally liquidating the company, it’s possible that the strike off request may be suspended if objected by creditors.

Guilty of director misconduct – If a company director wishes to close a company with debts, they must seek voluntary liquidation. As part of the liquidation process, an insolvency practitioner will investigate director conduct and the events leading up to the closure of the business.

If the insolvency practitioner uncovers misconduct or finds that the company director failed to protect the financial interests of company creditors, they could be disqualified as a company director under the Company Directors Disqualification Act (CDDA).

If a company director dissolves a company to avoid an investigation into director conduct, they risk a similar fate.

Disqualified as a company director - Powers afforded by the Rating (Coronavirus) and Director Disqualification (Dissolved Companies) Act, means former company directors of dissolved companies can be disqualified if they are found guilty of misconduct or wrongdoing at a later date.

Personally liabile for company debts – Depending on the severity of the offence, the company director could be held personally liable for company debts. For example, if a company director routinely opens a company, runs up debts, closes the company, and restarts this cycle, also known as phoenixism, they will be held personally liable for company debts.

Restoring company - If the strike off application is successful, creditors can apply to restore the company at a later date to recover money owed to them.

Fines and/or prosecution – Any wrongdoing could put the company director at risk of prosecution or fines.

How can we help?

To decide whether dissolving or liquidating a company is right for you, get in touch with a company liquidation expert at UK Liquidators. We offer a free, confidential consultation with a licensed insolvency practitioner, contact us to arrange a time that suits you. We also have over 100 offices across the UK, so get in touch with an insolvency practitioner near you.